If you are trying to purchase a home to, but you’re having a tough time securing an approval traditional lender; and do not have the required down payment for a private mortgage, an alternative is a Rent-to-Own Purchase. Below are the usual questions.
1. Regarding the initial down payment required to begin a rent-to-own program, how is this amount determined?
Answer: A few factors can come into play, but required down payment is generally 5% of the purchase price plus applicable Fees and closing costs of 3%; for a total of 8%. On a $400,000 purchase, that is approximately $32,000.
2: What are the typical fees associated with the rent-to-own process?
Answer: Expected costs consist of the following (Estimates):
- Home Inspection – $500.00
- Appraisal – $500.00
- Independent Legal Advice/Representation – $1500
3: Can I use my own real estate agent in this process?
Answer: 100%.
4: Who is responsible for purchasing the property at the outset of the program?
Answer: An investor partner purchases the property on the client’s behalf. Prior to finalization of the purchase, a Lease Agreement and a Purchase and Sale Agreement are required to determine the terms of the lease and the agreed end purchase price to ensure all parties are on the same page.
5: Who is responsible for the property maintenance for the term?
Answer: You, the tenant is responsible for all maintenance and utility bills, including water.
6: What are the options if I am unable to complete the purchase at the end of the lease term?
Answer: If payments have been missed or credit management guidelines have not been followed, you risk 100% loss of the initial down payment and accumulated credits. However, in the occurrence of an unexpected life event, exceptions may apply.
7: Are property taxes and insurance charges incorporated into the monthly payment?
Answer: Yes, property taxes and insurance are typically included within the monthly payment.
8: Can I qualify with poor credit?
Answer: Yes. Programs are available that aims to assist with credit improvement.
9: Is it possible to purchase a property in any chosen location?
Answer: Yes, but more marketable properties in urban centres and direct surrounding areas are preferred. The less marketable the property the more difficult it is to match an investor.
10: How is the future purchase price of the home determined?
Answer: A fair yearly appreciation is applied each year to determine predicted future value. This is disclosed in advance prior to finalizing an agreement.
11: Who makes the offer on the property?
Answer: The investor makes the offer as they are the one purchasing the property.
12: What is the typical period for finalizing an application?
Answer: Allow for between 4 – 6 weeks for the finalization once an investor has committed.